Select Comfort Corporation (ticker: SCSS, exchange: NASDAQ Global Market (.O))
News Release -
10-Feb-2004
Select Comfort Corporation Reports Record Fourth Quarter and Full-Year Earnings; 2003 Revenues up 36 Percent; Same-Store Sales Increase 31 Percent
Company establishes Q1 guidance and updates full-year 2004
financial outlook
MINNEAPOLIS--(BUSINESS WIRE)--Feb. 10, 2004--Select Comfort Corporation (Nasdaq:SCSS), the nation's leading bed
retailer and creator of the Sleep Number(R) bed, today announced
results for the fourth quarter and year ended January 3, 2004. The
company reported its tenth consecutive quarterly profit with net
income of $11.1 million, or $0.28 per diluted share, compared with pro
forma (after tax) net income of $0.15 per share in the fourth quarter
of 2002. Fourth quarter 2003 net sales increased 49 percent to $137
million, versus 2002 net sales of $92 million.(1)
For fiscal 2003, Select Comfort reported earnings of $27 million
or $0.69 per diluted share on net sales of $458 million. As of January
3, 2004, the Company's cash and marketable securities increased 83
percent to $75 million from $41 million a year ago.
"2003 was another exceptional year for Select Comfort in terms of
executing our core growth initiatives in sales, profit and
innovation," said Bill McLaughlin, president and chief executive
officer. "Revenue increased 36 percent, anchored by same-store sales
growth of 31 percent, on top of 27 percent growth a year ago.(1) The
company generated operating free cash flow (2) of $31 million during
2003, strengthening our debt-free balance sheet and allowing us to
invest in building awareness and distribution. In 2003, we spent $60
million in advertising and opened 27 stores. The leverage in our
vertically integrated operating model is demonstrated by our 103
percent increase in operating income in 2003."
McLaughlin continued, "2004 will be about continued execution of
our core initiatives for further sales growth and margin leverage. We
plan to increase our advertising investment by more than 30 percent
and expand our store base, with both strategies focused on
strengthening our position in major metropolitan markets. Product
innovation remains an important strategy, elevating mix and margin,
and allowing us great leverage from our business model."
The company's earnings under Generally Accepted Accounting
Principles (GAAP) for 2003 are being compared to 2002 earnings on a
pro forma, after-tax basis to improve comparability between the
periods. GAAP did not allow the company to reduce its earnings for
income tax expense in 2002, while 2003 results reflect a reduction in
earnings for income taxes. In the fourth quarter of 2002, pro forma
earnings per diluted share were $0.15 and reported earnings per
diluted share under GAAP were $0.21. In 2002, pro forma earnings per
diluted share were $0.37 and reported earnings per diluted share under
GAAP were $1.09. A full reconciliation of the company's pro forma,
after-tax earnings per diluted share for 2002 to treatment under GAAP
can be found at the end of this release.
2004 Business Outlook
In 2004, Select Comfort will focus on sustaining growth through
execution of high-impact initiatives that follow the company's four
strategic priorities. The company plans to:
- Increase brand and product awareness
- Increase advertising investment by more than 30 percent to
$80 million, including a 25 percent increase in national
advertising.
- Expand the local Sleep Number(R) retail advertising
campaign into 13 new markets, for a total of 34 markets,
representing approximately 55 percent of the United States
population.
- Expand profitable distribution
- Open 25-30 new stores in major metropolitan markets and
other areas where Select Comfort is understored.
- Upgrade marquee and design of approximately 150 stores,
providing a consistent national brand image.
- Accelerate development and introduction of proprietary product
offerings
- Upgrade product offerings through new bed and accessory
introductions throughout the year.
- Test launch in pilot markets the nation's first sofa
sleeper featuring a Sleep Number(R) bed inside.
- Strengthen financial position
- Continue to leverage our vertically integrated business
model of just-in-time inventory and make-to-order bed
production.
- Improve 2003 operating margin of nine percent by one to
two percentage points in 2004, while generating operating
free cash flow of greater than $20 million.
Assuming continued performance of advertising and growth programs,
no significant changes to the U.S. economic recovery, mattress
industry growth rates, or competitive reaction to the company's recent
success, estimated EPS for full-year 2004 is expected to be $0.90 to
$0.93. The company anticipates revenue to be in the range of $550
million to $580 million with same-store sales growth between 15
percent and 22 percent.
For the first quarter of 2004, the company expects to generate
revenue of $127 million to $133 million and earnings per share in the
range of $0.14 to $0.16, with same-store sales growth of 15 to 20
percent.
Select Comfort is forecasting quarterly earnings contributing to
full-year results in the following manner: 17 to 19 percent of
full-year earnings occurring in the first quarter; 15 to 17 percent in
the second quarter; 27 to 29 percent in the third quarter; and 36 to
39 percent in the fourth quarter. This breakdown does not follow
historical patterns due to an expected shift in QVC programming into
the third quarter of 2004 versus the second quarter of 2003.
Select Comfort's updated guidance ranges are in line with the
company's goal to sustain annual sales growth rates in excess of 15 to
25 percent and an earnings growth rate of 30 percent.
Conference Call Announcement
Select Comfort will hold a conference call to discuss its fourth
quarter and year-end results on February 10, 2004, at 4:00 p.m.
Central Time. A simultaneous webcast of the call will be available in
the Investor Relations section of www.selectcomfort.com. A digital
replay of the conference call will be accessible beginning at
approximately 6:00 p.m. Central Time on February 10, 2004, through
5:00 p.m. Central Time on February 17, 2004. To access the replay,
please call 402-220-3572 (U.S. and International). An archived replay
of the conference call may also be accessed after approximately 7:00
p.m. Central Time on February 10, 2004 at www.selectcomfort.com.
About Select Comfort
Founded in 1987, Select Comfort Corporation is the nation's
leading bed retailer(3), holding 26 U.S. issued or pending patents for
its personalized sleep products. The company designs, manufactures and
markets a line of adjustable-firmness mattresses featuring air-chamber
technology, branded the Sleep Number(R) bed, as well as foundations
and sleep accessories. Select Comfort's products are sold through its
343 retail stores located nationwide, including 13 leased departments
in Bed Bath & Beyond stores; through selected bedding retailers;
through its national direct marketing operations; and on the Internet
at www.selectcomfort.com.
Statements used in this press release that relate to future plans,
events, financial results or performance are forward-looking
statements that are subject to certain risks and uncertainties
including, among others, such factors as general and industry economic
trends, uncertainties arising from global events, consumer confidence,
effectiveness of our advertising and promotional efforts, our ability
to secure suitable retail locations, our ability to attract and retain
qualified sales professionals and other key employees, consumer
acceptance of our products and product innovation, our ability to
continue to expand and improve our product line, industry competition,
warranty expenses, California wage and hour litigation, our dependence
on significant suppliers, and the vulnerability of any suppliers to
recessionary pressures, labor negotiations, liquidity concerns or
other factors, increasing government regulations, including possible
new flammability standards for the bedding industry, as well as the
risk factors listed from time to time in the company's filings with
the SEC, including the company's Annual Report on Form 10-K and other
periodic reports filed with the SEC.
The company has no obligation to publicly update or revise any of
the forward-looking statements that may be in this news release.
(1) Fiscal 2003 includes 53 weeks, as compared to 52 weeks in
fiscal 2002. The additional week in 2003 was in the fourth quarter.
Same-store sales have been adjusted and reported as if both years had
the same number of weeks.
(2) Net cash provided by operating activity less purchases of
property and equipment.
(3) Top 25 Bedding Retailers, Furniture Today, May 26, 2003
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
Three Months Ended
(Unaudited) Twelve Months Ended
----------------------- -----------------------
January 3, December 28, January 3, December 28,
2004 2002 2004 2002
---------- ------------ ---------- ------------
Net sales $137,138 $92,263 $458,489 $335,795
Cost of sales 51,739 34,584 171,163 125,796
---------- ------------ ---------- ------------
Gross profit 85,399 57,679 287,326 209,999
---------- ------------ ---------- ------------
Operating expenses:
Sales and marketing 57,649 40,309 206,129 155,890
General and
administrative 10,769 8,534 38,423 32,854
Store closings and
asset impairments 4 - 71 233
---------- ------------ ---------- ------------
Total operating
expenses 68,422 48,843 244,623 188,977
---------- ------------ ---------- ------------
Operating income 16,977 8,836 42,703 21,022
---------- ------------ ---------- ------------
Other income
(expense):
Interest income 214 164 612 571
Interest expense (14) (254) (170) (1,655)
Other, net (26) (178) - (198)
---------- ------------ ---------- ------------
Other income
(expense), net 174 (268) 442 (1,282)
---------- ------------ ---------- ------------
Income before income
taxes 17,151 8,568 43,145 19,740
Income tax (expense)
benefit (6,095) 477 (15,973) 17,762
---------- ------------ ---------- ------------
Income before
extraordinary loss 11,056 8,091 27,172 37,502
Extraordinary loss
from early
extinguishment of
debt, net of tax - (380) - (380)
---------- ------------ ---------- ------------
Net income $11,056 $7,711 $27,172 $37,122
========== ============ ========== ============
Net income per share -
basic $0.32 $0.25 $0.83 $1.51
========== ============ ========== ============
Weighted average
shares - basic 34,843 30,488 32,856 24,549
========== ============ ========== ============
Net income per share -
diluted $0.28 $0.21 $0.69 $1.09
========== ============ ========== ============
Weighted average
shares - diluted 39,881 36,636 39,277 34,532
========== ============ ========== ============
Reconciliation of EPS
Information:
Net income $11,056 $7,771 $27,172 $37,122
Add: Interest expense
on convertible debt - 54 81 563
---------- ------------ ---------- ------------
Net income available
to common
shareholders $11,056 $7,765 $27,253 $37,685
========== ============ ========== ============
Weighted average
shares outstanding 34,843 30,488 32,856 24,549
Effect of dilutive
securities:
Options 2,919 2,629 2,823 1,884
Warrants 2,119 2,792 3,331 2,885
Convertible debt - 727 267 5,214
---------- ------------ ---------- ------------
Dilutive weighted
average shares
outstanding 39,881 36,636 39,277 34,532
========== ============ ========== ============
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
January 3, December 28,
2004 2002
---------- ------------
Assets
Current assets:
Cash and cash equivalents $24,725 $27,176
Marketable securities - current 49,322 12,146
Accounts receivable, net of allowance for
doubtful accounts of $619 and $340,
respectively 6,823 3,270
Inventories 12,381 8,980
Prepaid expenses 5,244 5,467
Deferred tax assets 6,039 12,955
---------- ------------
Total current assets 104,534 69,994
Marketable securities - non-current 1,071 1,502
Property and equipment, net 36,134 28,977
Deferred tax assets 5,620 4,352
Other assets 3,343 3,506
---------- ------------
Total assets $150,702 $108,331
========== ============
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $- $11
Accounts payable 14,773 16,508
Accruals:
Sales returns 3,469 3,181
Compensation and benefits 16,579 13,666
Taxes and withholding 3,661 2,779
Consumer prepayments 5,970 1,964
Other 6,110 5,120
---------- ------------
Total current liabilities 50,562 43,229
Long-term debt, less current maturities - 2,991
Accrued warranty costs 2,557 3,626
Other liabilities 4,821 3,970
---------- ------------
Total liabilities 57,940 53,816
---------- ------------
Shareholders' equity:
Undesignated preferred stock; 5,000,000
shares authorized, no shares issued and
outstanding - -
Common stock, $.01 par value; 95,000,000
shares authorized, 35,769,606 and 30,727,101
shares issued and outstanding, respectively 358 307
Additional paid-in capital 104,085 92,184
Unearned compensation (877) -
Accumulated deficit (10,804) (37,976)
---------- ------------
Total shareholders' equity 92,762 54,515
---------- ------------
Total liabilities and shareholders'
equity $150,702 $108,331
========== ============
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Twelve Months Ended
-----------------------
January 3, December 28,
2004 2002
---------- ------------
Cash flows from operating activities:
Net income $27,172 $37,122
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,145 9,194
Amortization of debt discount and deferred
finance fees 130 1,279
Non-cash compensation expense 75 -
Loss on disposal of assets and impaired
assets 96 548
Deferred tax assets 5,648 (17,307)
Change in operating assets and liabilities:
Accounts receivable, net (3,553) (647)
Inventories (3,401) (894)
Prepaid expenses 223 (1,879)
Other assets 129 1,441
Accounts payable (1,735) 1,292
Accrued compensation and benefits 2,913 6,487
Accrued taxes and withholding 5,295 (253)
Customer prepayments 4,006 701
Other accruals and liabilities 1,060 (940)
---------- ------------
Net cash provided by operating
activities 49,203 36,144
---------- ------------
Cash flows from investing activities:
Purchases of property and equipment (18,364) (7,802)
Investments in marketable securities (55,717) (24,780)
Proceeds from maturity of marketable
securities 18,972 11,132
---------- ------------
Net cash used in investing activities (55,109) (21,450)
---------- ------------
Cash flows from financing activities:
Principal payments on debt (11) (5,022)
Repurchase of common stock (1,834) -
Proceeds from issuance of common stock 5,300 1,129
---------- ------------
Net cash provided by (used in) financing
activities 3,455 (3,893)
---------- ------------
(Decrease) increase in cash and cash
equivalents (2,451) 10,801
Cash and cash equivalents, at beginning of
period 27,176 16,375
---------- ------------
Cash and cash equivalents, at end of period $24,725 $27,176
========== ============
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Information
Select Comfort Pro Forma Net Income and Earnings Per Diluted Share
Reconciliation
The reconciliation of net income and earnings per diluted share as
reported under Generally Accepted Accounting Principles (GAAP) to the
company's estimates of pro forma net income and pro forma earnings per
diluted share for the fourth quarter of 2002 and full-year 2002 are as
follows:
Three Twelve
months months
ended ended
---------- ----------
Reconciliation of GAAP net income to pro forma
net income: 12/28/02 12/28/02
---------- ----------
GAAP net income $7,711 $37,122
Effect of:
Income tax provision at 38% of income before
tax (3,256) (7,501)
Charges from early repayment of debt 614 614
Restoration of deferred tax asset and other
income tax items 243 (17,996)
---------- ----------
Pro forma net income $5,312 $12,239
========== ==========
Three Twelve
months months
ended ended
---------- ----------
Reconciliation of GAAP earnings per diluted share
to pro forma earnings per diluted share 12/28/02 12/28/02
---------- ----------
GAAP earnings per diluted share $0.21 $1.09
Effect of:
Income tax provision at 38% of income before
tax (0.09) (0.22)
Charges from early repayment of debt 0.02 0.02
Restoration of deferred tax asset and other
income tax items 0.01 (0.52)
---------- ----------
Pro forma earnings per diluted share $0.15 $0.37
========== ==========
CONTACT: Select Comfort Corporation, Minneapolis
Mark Kimball, 763-551-7070
mark.kimball@selectcomfort.com
SOURCE: Select Comfort Corporation
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Select Comfort Corporation
